Property Rights Dynamics: A Law and Economics Perspective (The Economics of Legal Relationships)


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Antecedents and the general framework of firm economics

The formal institutions are important for transaction, since property rights traded on the market are established by the legal system. However, besides the formal institutions, private agents can practice self-enforcement, through informal institutions. In this sense, reputation is a form of contract enforcement and it is not necessarily based on public rules. When the agents have not created a reputation or trust, the private rules might not be adequate for contract enforcement and the State intervention will be necessary. As analyzed Eggertsson when dealing with long-term contracts, State intervention is an alternative to induce specific investments, encourage contracts through government guarantees and reduce transaction costs.

Such contracts are distinct from the multiplicity of contracts typified in the Civil Code or the Land Statute, two of the most important legal sources of Brazilian law in contractual issues. In the absence of a specific law to legally protect contract farming — as in Brazil —, the parts involved in the relationship negotiate and develop private mechanisms for contract enforcement. These private arrangements include safeguards to avoid opportunistic behavior that may arise.

Thus, the reputation of parts involved in the transaction is the main aspect for the AGS running. On the other perspective, private and public institutions can coexist and they are complementary instruments. The argument supporting complementarity view is the idea that incomplete formal contracts facilitate the self-enforcement of informal agreement; i. The contract farming is widely practiced in other sectors, such as poultry, swine, dairy and flowers, as well as distributors for own-brand products.

However, the agricultural contracts regulated in Brazil by Estatuto da Terra, Law 4,, 30 th November , are land leasing and partnership. These contracts are related to property approach and they search for social function of property. The agricultural contracts do not need to be written due to the complexity of Brazilian reality that there are a number of illiterate in the rural environment BORGES, According to Zimatore , contracts might not correspond to a legal scheme.

However, they are social institutions for the circulation of wealth and the distribution of risks between the parts involved in the contract. The importance of contract farming in Brazil arouses the interest of legislators, engendering the political discussion of bills related to contract farming since The State intervention in the contract farming would mark the transition of economic rights to legal rights, terms classified by Barzel In terms of economic rights, each individual is able to consume and exchange goods and services without State intervention.

In this sense, the owners can benefit from the rights to properties or assets without State recognition. Transactions guaranteed by economic rights would be those typically performed in a given community. The agreements are performed according to the norms of conduct stated by the community. Moreover, the parts involved in the transactions take into account the reputation for the agreements enforcement. Thus, the rights may exist even in the absence of legal rights. In terms of legal rights, the rights are those outlined by the State.

Based on economic and legal rights, Barzel distinguishes agreements from contracts. The term agreement is widely used, while contract is strictly the agreement guaranteed by the State; therefore, contract would be part of the legal rights. Any other arrangements are related to economic rights determined by private rules, which may be self-enforced. By treating all transactions as agreements, they must somehow be fulfilled. Each economic agent will use the method of coercion that is more advantageous, and may be through self-enforcement or seek a third party that may be an arbitrator or judge BARZEL, Self-enforcement is determined by the reputational capital of the economic agents involved in the contractual relationship of the AGS, but does not always work well for all types of agreement, and in these cases a third party is required.

In this sense, Barzel , p. Third-party enforcement, however, is costly and will not be used in all cases. According to Klein , considering that self-enforcement mechanisms are limited, the parts of a contract would benefit from contractual terms. In this sense, one might consider that the traditional mechanisms of legal norms would complement the mechanisms of self-enforcement, instead of thinking that they can substitute each other.

However, in many cases the agreements are given in a more impersonal way, so the reputation of the parts and the State intervention turn out to be insufficient to achieve the required assurance of due performance of the agreement. The legal definition of the contract, according to Roppo , contains three components, which are: a the parts involved in the agreement, so the contract is a consensual act; b the object of the agreement: a patrimonial legal relationship; therefore, the agreement is a patrimonial legal act; c the act of will to constitute, regulate or terminate the contract. On the one hand, the contract should be subject to economic operations.

On the other hand, economic operations might act as non-legal contractual form, although they may legally constitute matters of contract. This means that these economic operations tend not to adhere to the legal contractual form and follow the rules determined by private economic agents.

These economic agents are performing a transfer of wealth without a formal contract, but with just a handshake. The agents involved in the transaction apply their own rules and reject the idea of formalizing the agreement on legal contractual basis because they avoid using the complex mechanism of sanction constituted by the legal rules. In this sense, the economic agents exert their economic rights. As analyzed Roppo , the question that arises is whether the agreement can create any legally meaningful relationship, since it is not a contract.

Agreements can be socially valid, but they are neither part of the contractual sphere nor guaranteed by the State. The economic agents themselves determine the rules of the game that will be appreciated internally and used for dispute solution. In this sense, the economic rights act in the agreements, even if they have the patrimonial component.

So the contract would be socially typical contracts where legal rights would not be applied. The intervention of State for contract farming in the Brazilian AGS through a specific law would overcome the private sphere and reach the relations in a more impersonal mode. However, the State does not have a complete power, and private rules can coexist due to the complexity of the AGS.

Thus Barzel , p. In terms of contract farming, economic agents might establish agreements through economic rights. These rights may be part of the contracts that are recognized by the state; i. In Brazil, although contract farming is widely practiced, there is no specific law and the economic agents design the contract farming with economic rights. However, the private institutions that are part of economic rights should operate under the shadow of law, as observed Williamson Indeed, the contract farming has the main elements for its validity provided by legal rights: I — legal capacity; II — lawful object; III — legal formalities.

Summarizing, in spite of being the structural element of the contract the agreement cannot always be regarded as contract, according to the classification of Barzel The contract should refer to patrimonial relations, while the agreement has broader application, such purely social relationship marriage, for example. Thus, the economic rights would guarantee the agreement, while legal rights would guarantee the contract. In this nebulous mass to determine if the relation is contract or agreement, there is the assumption that contract refers to a legal relationship.

The legal discipline of contracts is a positive action by the legislature that meets certain requirements and neglects others, seeking cover in economic operations as political interests. In Brazil, significant part of the production of vegetables, fruit, and livestock for industrial processing is produced through contract farming. However, as many countries, Brazil has no specific law for contract farming.

In terms of informal institutions, agreements with elements of transparency and mutual gains are required. In this context, it is observed that many internal disputes occur within the organization, because numerous rules are internal and the agents involved in the relationship themselves are in charge of the knowledge and functioning of the organization. According to Paiva , there are few demonstrations of conflict solutions on those contracts in Judiciary field.

It is assumed that the cause of low judicial demand could be the adoption of mediation to resolve disputes between parts. Moreover, the organization where the transactions occur would represent the Court of the First Instance because the conflict solution would be internally held. Another aspect to be considered is the economic imbalance of the parts, being agroindustry economically superior to farmers.

This would inhibit farmers from making any complaint through traditional mechanisms of justice, because this posture could exclude them from future negotiations. The lack of a specific legal framework for contract farming in Brazil leads to misjudged legal decisions. Labor issue is observed in sentences of the Brazilian Labor Justice.

Indeed, Posner , p. Therefore, the contracts signed are more a tool to safeguard the interests of agro-industries than to regulate the negotiation, since there is no great risk of contract breach. However, when the conflicts reach the court, according to the economic analysis of law, the judge should simulate a hypothetical negotiation of how the parts should make the contract to find the most efficient solution. However, when dealing with legal rules, gaps and failures might happen due to the impossibility of following the transformation of the society.

In other words, legislators are unable to predict all needs of the society. Thus, Cavalcanti , p. Such failures were revealing, on one hand, that the state law was not sufficient to meet social needs and, on the other hand, that outside the legislated right, there were other data and elements that the judge could and should rely, whenever the right emanating from official agencies be insufficient.

Even though it is not possible for legislators predict a complete law, it is expected that typification of contract farming in Brazilian legal framework would enables higher incentives for achieving more impersonal contracts. In this sense, a specific law for contract farming in Brazil would assure higher legal certainty for economic agents, which allows smaller efforts in writing contracts and, consequently, lower transaction costs. The economic sectors associations of producers and agro-industries involved in contract farming focused on discussion of the content of legislative proposals for a consensus on a future law.

Formal and informal institutions compose the institutional environment that provides a set of incentives and deterrents for agents. The political, social, and legal ground rules establish the basis for production, exchange and distribution.

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Informal institutions are economic and social sanctions defined and applied by private agents, such as the rules established in Cadec. Source: Created by the authors. In terms of formal rules, the State intervenes and establishes them. Considering the importance of legal regulation of contract farming, the economic sectors association of producers and agroindustry focused on the discussion of the content of legislative proposals for a consensus of future law. The objection to the original text was due to the impossibility of industries bear the costs. Integrated Producer: agroforestry and animal farmer, agrarian company, individually or in association with others, that is linked to the integrator through the integration contract, receiving goods or services for production and providing raw materials for integrator, goods intermediate or final consumption goods.

Integrator: individual or company that is linked to integrated through integration contract that furnishes goods, supplies and services and receiving raw materials, intermediate goods and final consumer goods used in industrial or commercial process. In terms of definitions of the parts, the bill makes it clear that may farmers and agroindustry in the form of physical or legal person, including the figure of the cooperative, be parts of the contract farming.

The bill specifically excludes the vertical integration relationship established between cooperative members and the cooperative, or cooperatives among themselves, because it represents horizontal modalities and not vertical integration, governed by a specific law of cooperative activity. However, relations between cooperatives members and cooperatives can be characterized as a contract farming when the members are encouraged to purchase the input of the cooperative and surrender all production to it. The concept of integrated producer elected by the Brazilian legislature has focused on the nature of the goods produced, which are related to the exploitation of natural resources, primary agriculture, livestock, forestry and aquaculture.

The bill does not specify the intermediate goods, such as honey, processed coffee, silk etc. Brazilian legislators also chose to embrace the relationship between the farmer and the merchant retailer, wholesaler or exporter in the concept of contract farming, since it is not simple transaction of buying and selling. To characterize contract farming, mutual supply of goods and services, or the presence of interdependence of parts is necessary. In order to make clear that the figure of contract farming cannot be confused with employment relationship, the Brazilian bill provides, precisely in art.

The inclusion of this paragraph in the body of the bill stems from numerous decisions of the Labour Court considering the existence of labor ties between producer and industry, or the subsidiary responsibility of the industry in the face of employees or service providers linked to the integrated producer. Thus, they do not recognize the economic and legal autonomy of integrated producers. Such feature is replaced by the idea of cooperation between integrated producer and integrator. Under the bill, the guidance of all law enforcement and interpretation principle is that the relationship of contract farming is a pooling of resources, efforts and the fair distribution of income.

Integrated producer: performs activities of growing, breeding or extracting plant or animal feedstock, with respect to the agreed technical specifications; delivers the entire production agreed that corresponds to pre-set criteria of quantity and quality. Integrator: receives all production contracted; pays the pre-set price and exercises control and inspection of the production phase performed by the integrated producer.

However, the agreements between the parts have a number of other ancillary obligations such as providing packaging, transport, advanced credit, input supply and technical assistance. It is observed that the sections I through IX refer to mandatory clauses, which are intended to make contractual relationship more transparent, thus helping to reduce opportunities for contract breach.

Note that the integrator usually drafts the contract farming for integrated producer adhesion of pre-set clauses. The sections of the X until XIII provide the rules of tax liability, environmental and health, as well as allowing parts to establish accessory contract of insurance as mandatory. The item XIV expresses important rule about minimum contract duration, as well as the prior notice period for termination of the productive cycle of activity and investments made by the parts. The goal is to protect the entrepreneur integrated producer or integrator , especially the integrated producer who is the possible weak part in the chain of unilateral contract termination, which may cause damage since much of the investment employed only produce financial returns in the medium to long term.

Each unit of the integrator agroindustry and integrated producers must constitute Cadec unless the structure of the supply chain already exists a similar institution. In terms of RIPI, integrator agroindustry should organize the report for each production cycle of integrated producer. This report contains information on the inputs provided by the integrator, the phytotechnical and zootechnical indicators of integrated production, the quantities produced, productivity rates and prices used in the reckoning of financial results, and other information specified by the Monitoring, Development and Reconciliation of Integration Committee Cadec.

In terms of DIPC, integrator agroindustry provides information for those interested in joining the production system. This document will be updated quarterly and will contain information with data from the integrator agroindustry, the description of the integrated production system, health and environmental requirements and economic risks of the activity, the estimated investment in facilities or growing areas, the estimated share of the integrated by livestock or harvest cycle, the alternatives of agricultural finance institution or integrated agroindustry, technical and economic parameters set by the integrator for the study of economic, and financial feasibility of the project financing of the project.

However, it establishes rules that would be conducted by private agents. Informal institutions have a more flexible method of action that allows the agents to make renegotiation and obtain a better adaptation in a dynamic environment. According to Bobbio , the theory of the institution expands the horizons of legal experience beyond the limits of the State. Thus, the theory of the institution broke the closed circle of statist theory of law, which considers only the State law.

Institutions arise from the process by which the principles of coordination are accepted locally and are adopted by a growing number of agents until they become a generic and unique basis for coordination. Agreements between integrated farmers and integrator agro-industries arise through negotiations and are willingly accepted as rules.

Therefore, organizations undertake negotiations that are accepted as rules, creating institutions that may become generic and mandatory for agents that are part of contract farming. The main objective of Cadec is to expedite transactions between the integrated agricultural producer and the integrator agro-industry, providing a forum for conciliation and settlement of disputes amid them. The normative rules of the State do not replace the specific regulations of each private agricultural sector, but can complement them. Economic agents can employ these associations to facilitate the adoption of actions.

The interest of the agent for collective action emanates from its superior efficiency at achieving coordinated solutions as compared to the agreements performed individually. Individual negotiations can be costly compared to collective agreements. These common agreements would be conducted by private norms, i. A producer can enroll at an association of agricultural producers as a discrectional act, based both on individual and collective interest. The rules are supposed to satisfy the interests of association members by offering better terms of coordination and negotiation compared to individual acts.

The Cadec would be similar to the interprofessional agreement that develops tools for mediation whereby farmers can negotiate more balanced conditions with agro-industry or distributor, which, usually, have greater bargaining power. Institutional arrangements are structured based on relational contracts, for example, when the informal institutional norms prevail; the parts make agreements internally through Cadec. The parts involved in Cadec may hold informational advantages over the bodies of the Judiciary. Therefore, according to Ulen , the parts already have all the knowledge of trading, while the judge would have to take knowledge of the contractual terms, the object traded, the market, and a lot of information that can be quite complex to no anyone not involved in the relationship.

Therefore, it is expected that the transaction costs of settlement of disputes are resolved internally when smaller, because of informational advantages of contractors in relation to the Courts. According to the analogy of Williamson ; , Cadec could be the Court of first instance, where different types of disputes are resolved. Another aspect to be taken into account when it comes to the reduction of transaction costs is the increased level of confidence that the contractual relationship inspire to the parts, which integrates the reputation for the contract performance.

The relational development has long-term implications, since the parts, even with latent conflict, develop informal negotiation mechanisms of great complexity. If the informal norms prevail, rather than explain all contractual terms ex-ante , parts may rely on private mechanisms to enforce the contract. The reputation of the agents is an important private mechanism and represents the previous actions of quasi-rents appropriation arising from specific investment.

Klein notes two aspects regarding the appropriation of quasi-rents: 1 the risk of termination of the relationship; 2 the loss of reputation of the agent before the market it serves. On the other hand, the explicit contractual terms, even though the State has no major role at the fulfillment of the contract, can complement the institutions of private ordering, suggesting potential sanctions that affect the cost of the contract breaching. However, because of the complexity of the AGS, the agents involved in the transaction determine a great number of norms, which would not necessarily be brought to the attention of the State.

The Cadec provides private rules for the achievement of agreements between integrated producer and integrator agroindustry. Therefore, these private rules would be economic rights. These rules may be part of the contract recognized by the State. In this sense, we would consider that the legal rights would be complementary to economic rights concerning the operation of the AGS, since both legal and economic rights can coexist.

In the Brazilian AGS, because of the lack of a specific Law for contract farming, economic agents create their own rules economic rights. The lack of a positive norm leads the agents to create institutions for guaranteeing agreements or the courts will base their decisions on rules of commercial law or similar for conflicts solutions in contract farming. On the other hand, private institutions may not be sufficient, and it highlights the importance of public institutions, since they assure greater legal certainty, and reduce the ex-ante efforts for contractual relations in the AGS, leading to transaction costs reduction.

In this sense, we would consider that the legal rights would be the complement of economic rights to operate the AGS, because both rights can coexist. The legal regulation of contractual relations in the AGS is an extension from rules stipulated by private economic agents. Our assertment is that the adoption of mixed regimes contributes to the improvement of the coordination of AGSs.

Informal rules cover social norms to explain the operation of the production system. This suggests the hybrid characteristic of the agreements, situated between the State dirigisme and private autonomy. The proposed formation of Cadec is interesting since it increases the transparency of information and the contractual balance; therefore, allowing the transaction costs reduction.

However, the effectiveness of Cadec is uncertain because there is no specific incentive for this to occur. Future research should be addressed to this issue. We also thank Wagner Luiz Lourenzani for his comments on early versions of this paper. The financial support of Capes for pos-doc program is acknowledged. Sistema agroalimentare. Digesto delle Discipline Privatistiche. Sezione Civile. Tomo II. Torino: UTET, p. The quasi-judicial role of large retailers: an efficiency hypothesis of their relation with suppliers.

The role of institution in the contractual process. Law and economics in civil law countries. Amsterdam: Elsevier Science, The Economics of Legal Relationships Series. A Theory of the State.

Economic rights, legal rights and the scope of the state. Cambridge: Cambridge University Press, Napoli: Edizione Scientifiche Italiane, Teoria geral do direito. Accessed: Mar. Relator: Flavio Allegretti de Campos Cooper. Derecho agrario. Buenos Aires: Astrea, Flexibility in long-term contractul relationships: the role of co-operation. Lean Construction Journal , v. The nature of the firm. Economica , v. The institutional structure of production. American Economic Review , v. Contratti agro-industriali. Dizionari del diritto privato.

Diritto Agrario. La Questione Agraria , n. The effects of transaction costs, power and risk on contractual arrangements: a conceptual framework for quantitative analysis. Journal of Agricultural Economics , v. Economic behavior and institutions. Instituzioni ed imprese nel percorso di sviluppo dei sistemi locali di produzione agroalimentare. Le istituzioni della globalizzazione. Bologna: Il Mulino, McCay, B. Ocean and Coastal Management, 28 : Moloney, D.

Pearse Quantitative rights as an instrument for regulating commercial fisheries. Journal of the Fisheries Research Board of Canada, Munk-Madsen, E. North, D. Institutions, Institutional Change, and Economic Performance. CUP, Cambridge. Palsson, G. The vitual aquarium: Commodity fiction and cod fishing. Ecological Economics, 24 : Figuring fish and measuring men: The individual transferable quota system in the Icelandic cod fishery. Perman, R. Ma and J. McGilvray Schlager, E. Ostrom Land Economics, 68 3 : Scott, A. The fishery: the objectives of sole ownership.

Journal of Political Economy, Development of Economic Theory on Fisheries Regulation. Development of Property in the Fishery. Marine Resource Economics, 5: Slade, D. Kehoe and J. Stahl Putting the public trust doctrine to work. Coastal States Organisation. Trebeck, D. Battaglene, M. Exel, O. Harasymiw, and G. Hewitt McFarlane B. The term "State" here includes the Commonwealth and the Northern Territory. The State's rights in this area will vary depending on the geographic location of the fishery and the source of their rights. The focus of this paper is licensing in sea fisheries.

The paper examines the nature of an Australian fishing licence. It attempts to determine whether the licence is a property right, a right with some of the legal characteristics of property, or whether it is some different, and perhaps lesser, form of interest. Case law seems to cloud, rather than clarify the issue.

In the majority of instances, fishing licences are creatures of statute and are therefore susceptible to change. However, there are some rights to fish which are recognised at common law. However, does such a concept extend to wild sea fisheries? An attempt is made to reconcile the common law and statutory rights to take fish and to determine if, in fact, Australian fishing licences are a property right.

The Australian States, which commenced life as British colonies, derived their law from the common law system of England. They share that heritage with a number of other so called "common law countries" such as Canada, New Zealand, India, South Africa and Malaysia. The theory was that the first settlers in a new colony brought with them "all the English laws then in being However, that general proposition was severely limited and it is probably more correct to say that they brought with them " Indigenous peoples and their traditional laws were ignored by the adoption of the legal fiction of terra nullius, empty land.

Although Australia was colonised from onwards, and sovereignty claimed, each of the colonies derived their power from, and were beholden to, Great Britain. To the extent hypothesised by Blackstone, the common law of the parent Great Britain became the common law of the child Australian Colonies. Obviously, common law inheritance has been severely modified by two centuries of judicial consideration, both in Australia and other parts of the world. Given the comments of Blackstone, it can be argued that the English common law position with respect to fish and fisheries would, at least initially, have been in force in each of the Australian colonies.

Was there an English common law right to take wild fish or to own wild fish? Prior to the Magna Carta, there seems to be no doubt that at common law the public had a right to fish in the tidal reaches of all rivers and estuaries, and the sea and arms of the sea within the territorial waters of the kingdom 4.

The exceptions to this principle were where the Crown, or some subject, had acquired a proprietary interest exclusive of the public right, or where Parliament had restricted the common law rights of the public. Following the Magna Carta, the public right could only be excluded or modified by an act of the legislature 5. For a discussion of what constitutes the territorial waters of the kingdom, see n10 and following. See also Harper v Minister for Sea Fisheries CLR at which confirms that because it is a public and not a proprietary right, it is amenable to abrogation or regulation by a competent legislature.

Prior to colonisation of Australia, it was also settled law in England that "there is no absolute property in living fish, other than oysters, mussels, cockles and clams on certain land, for in their natural state they are wild animals, and are not goods and chattels; there may, however, be a qualified property in them as in other wild animals" 6. There is nothing to suggest that, subject to modification by statute, this was not also initially the common law position in Australia.

Therefore, it is probably not unreasonable to conclude that unless individual States have claimed "absolute property" in wild fish by legislative fiat, none exists. As will be discussed later, such a claim has its inherent difficulties. Each of the States eventually achieved self-government 7 and subsequently received their own constitutions under which to operate 8. Although none of these constitutions specifically dealt with the power to legislate with respect to fishing, or the right to fish or ownership of fish stocks, that power was derived from the general power to legislate in a manner that promoted peace, order and good government.

However, that general power was limited in that any laws which were repugnant to the laws of England would be struck down. Evidence of each of the colonies exercising that general power can be found by reference to a range of early fisheries legislation, none of which purported to claim ownership of the fish stocks. This process was achieved by means of the various letters patent for each State granted by Great Britain. At that stage the Northern Territory was annexed to South Australia. It did not become a State in its own right and after Federation its legislative capacity was controlled by the Commonwealth as one of its Territories.

The independence of the States was limited by choice in The Commonwealth of Australia Constitution Act although the result of many conventions and draftings convened by the Australian States in the 's, was passed by the United Kingdom Parliament in July The Constitution contained within the Act did not come into force until 1 January On the same day the Commonwealth of Australia was established, which created a Federation of the six original States and a central government. The States were left with their own existing constitutions, as modified by the Commonwealth Constitution.

That document set out the special powers conferred on the central government and its Parliament, its Executive and its Courts by the States, as well as declaring certain guarantees and prohibitions. The rest of the general powers remained with the States. One of the specific powers transferred to the Commonwealth dealt with fishing.

The Constitution vested power in the Commonwealth to make laws for:- " There is some evidence in the convention papers that some States identified specific fisheries over which they wished to retain legislative competence. The reference to "beyond Territorial Limits" is interesting. It implies that the States wished to retain their right to legislate inside that limit.

But what was meant, then and now, by the Territorial Limits referred to in the Constitution?

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At the time of colonisation of Australia, Britain asserted sovereignty over both the land and the sea. The Act purported to settle the sovereignty issue by including a specific provision which declared that: "It is by this Act declared and enacted that the sovereignty in respect of the territorial sea, and in respect of the air space over it and in respect of its bed and sub-soil, is vested in and exercised by the Crown in right of the Commonwealth".

The territorial sea extends 12 nautical miles to sea from the low water line along the coast, except where it follows baselines deliniating the internal waters of a State or the internal waters of the Commonwealth. That claim for sovereignty also extended to the contiguous zone and the continental shelf of Australia The effect was that the territorial seas adjacent to the States, which the States had previously claimed sovereignty over, were now vested in the Commonwealth.

In the case of fishing, this seemed to shift the boundary referred to in Section 51 x of the Constitution back to the States' coasts and internal waters boundaries. That is, those areas which could be considered part of the State. Or perhaps the term Territorial Limits always had this meaning. Although all States challenged the power of the Commonwealth to legislate in this manner, the High Court of Australia upheld the validity of the Act.

In the following years, there were a number of cases dealing with the ability of State legislation to have extra territorial effect operate outside the States' boundaries , so far as off-shore regions were concerned. There were also a number of fishing cases that helped to define the boundaries of the States internal waters. In , the Commonwealth and the States reached agreement on the settlement of off-shore constitutional issues. The settlement relied on a whole raft of complimentary legislation being enacted by both the Commonwealth and the States.

The States were given concurrent power to legislate with respect to this area. The States' powers remain limited to the coastal waters iii. Australia has the right to explore and exploit the living and non-living resources of the shelf. It specifically excludes any area resulting from an increase in the width of the Territorial Sea s4 2. The Coastal Waters of a State is defined to mean: "That part of the territorial sea 3 nautical miles seaward from the baseline AND any sea that is on the landward side of any part of the territorial sea of Australia and is within the adjacent area in respect of the State but is not within the limits of the State".

The State is also given power to legislate for areas outside coastal waters where there is an arrangement with the Commonwealth in place. Those powers include power to make laws with respect to fisheries, as if the waters were within the limits of the State section 5 a. A recent example of a State exercising a power to legislate in this in-shore area is the declaration by the Government of South Australia of the Head of the Great Australian Bight as a conservation zone dedicated to the preservation of the Southern Right Whale.

The Act gave to the States the same right and title to the property in the sea-bed beneath the coastal waters of the State and the same rights in respect of the space including the space occupied by water above that sea-bed , as would belong to the State if that sea-bed were the sea-bed beneath waters of the sea within the limits of the State. However, the grant did not extend to complete sovereignty. Much reference is made to the territorial sea baseline and where the boundaries of the various States and the Northern Territory begin and end.

This is particularly important with respect to the internal waters. Where it crosses bays and gulfs, it is more problematical.

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The importance of this concept is that those areas on the landward side of this baseline form part of the State in accordance with customary international law. A territory either has sovereignty, or it does not have sovereignty. There is no halfway point for the sovereign conditions. A demonstrated capacity for self-government remains central for sovereign Statehood. Sovereignty is therefore a property of States. It reflects effective control over territory and independence from other States". Sovereignty has also been defined as: "By 'exercising de facto administrative control' or 'exercising effective administrative control', I understand exercising all the functions of a sovereign government, in maintaining law and order, instituting and maintaining Courts of justice, adopting or imposing laws regulating the relations of the inhabitants of the territory to one and another and to the government.

It necessarily implies the ownership and control of property whether for military or civil purposes, including vessels, whether lawships or merchantships. In those circumstances it seems to me that the recognition of the government as possessing all those attributes in a territory or not subordinate to any other government in that territory is to recognise it as sovereign, and for the purpose of international law as a foreign sovereign State". The term, and perhaps its distinction from acquisition of property, was clarified in the Mabo No.

The distinction between the Crown's title to territory and the Crown's ownership of land within a territory is made as well by the common law as by international law". Sovereignty is merely a right to control and not ownership. The High Court in Harper v Minister for Sea Fisheries [] CLR at confirmed that the competence of the State Legislature to make laws regulating a right of fishing in such waters is not dependent upon the State's possession of a proprietary right in the bed of the seas or rivers over which such waters flow. All States have traditionally asserted the right of ownership of their minerals and some other terrestial resources.

Recently, every State in Australia has confirmed ownership of their natural resources in their respective Native Titles Acts But what is included within the term natural resources? Butterworths Australian Legal Dictionary gives one definition of natural resources: "The stock of naturally occurring, as opposed to manmade, tangible and intangible substances which are capable of exploitation for commercial purposes. Examples are timber, land, oil, gas, minerals and mineral ores, coal, lakes and submerged lands. It includes native features of benefit for health, welfare and wellbeing such as parks and heritage items.

The concept of permanent sovereignty over natural resources is further defined by Butterworth as: "The principle that, under international law, people and nations have the right to own and control their natural wealth and resources; GA RES XVII. Permanent sovereignty over natural resources is a basic constituent of the right to self-determination.

The utilisation, development and naturalisation of natural resources must be pursuant to the national development and well being of the people and international economic co-operation must be based on respect for the sovereign right to natural resources; GA RES XVII. Article 56[1][a] of the United Nations Convention on the Law of the Sea confirms that in the exclusive economic zone nautical miles seaward the coastal state has sovereign rights to explore and exploit, conserve and manage the natural resources, whether living or non-living, of the waters superjacent to the seabed".

There seems to be an acceptance of ownership of natural resources in the wide General Assembly Resolution. It certainly acknowledges all the elements of legislative, administrative and extractive control but seems to fall short of ownership. A search of Australian Legislation relevant to offshore areas suggests that the only definition of natural resources contained in any legislation is in Part I Section 5 of the Quarantine Act That provision defines natural resources as "the mineral and other non-living resources of the seabed and its subsoil". This seems to suggest that, at least at some levels, the term is limited.

The only judicial comment on the subject appears to support that position. Except for Tasmania and Victoria, none of the other States, the Northern Territory or Commonwealth Fisheries legislation have asserted a claim to ownership of the living marine resources. Tasmania made this claim in in their living marine resource legislation. Victoria asserts ownership of all wild fish, fauna and flora found in Victorian waters s10 1 of Fisheries Act Vic. Consistent with the common law position, it then passes that ownership to any person who lawfully catches any wild fish s10 2.

Living marine resources are defined in Section 3 of the Act as "fish and their environment". The waters referred to in Section 5 are as follows: " 1 State waters are: a Any waters of the territorial sea of Australia that are: i within 3 nautical miles of the baseline by reference to which the territorial limits of Australia are defined for the purposes of international law; and ii adjacent to the State; and b Any marine of tidal waters that are on the landward side of that baseline and are adjacent to the State, except inland waters; and c Any land which is swept by those waters to the highest landward extent.

However, from where do they derive the power or right to do so? Although the Coastal Waters State Titles Act of the Commonwealth vested title in the seabed beneath the coastal waters adjacent to the State, and that vesting gave the States the same rights as would have belonged to them if that seabed were the seabed beneath waters of the sea within the limits of the State, the grant did not extend to complete sovereignty. Nor did it pass title to the living marine resources within its area, principally it is submitted, because the Commonwealth did not itself have title to these resources. Similarly, although the Coastal Waters State Powers Act Cwth gave the States power to legislate within the coastal waters of the State, it fell well short of conferring any ownership of the fish stock.

A query then is whether the claim to ownership would be sustainable if it was subjected to legal challenge? Perhaps so, if the terms "own" and "ownership" were confined by the courts to the sovereign rights referred to above rather than absolute property in them.. It appears from the above that neither the States apart from Tasmania and Victoria or the Commonwealth claimed property in the wild fish stocks as they did with such things as minerals and forests.

Rather they merely asserted a right to legislate with respect to the resource. Earlier in this paper I identified that at common law there were only limited rights to ownership of wild animals and that the common law treated fish as analogous to wild animals. It was also recognised that the Crown did not assert ownership of the fish while they were in the wild. In effect they belonged to no one until they were caught and reduced into the possession of someone.

At that point they became the property of that person. A recent example of the difficulty with the Crown asserting " property " in wild things is the Queensland Fauna Act , the terms of which were considered by the High Court of Australia in Yanner v Eaton That case involved the prosecution of an Aboriginal person for taking a protected species crocodile under the legislation. The defendant claimed that he was exercising traditional native title rights and accordingly, was not subject to the legislation.

In the judgement, the High Court considered the concept of property. It noted that the word " property " is often used to refer to something that belongs to another. But in the Fauna Act, as elsewhere in the law, property " does not refer to a thing; it is a description of the legal relationship with a thing ". It refers to a degree of power that is recognised in law as power permissibly exercised over the thing. The concept of 'property' is elusive and I do not propose anything more here than a brief overview for the purposes of clarification.

Usually Property is treated as a "bundle of rights". But even this may have its limits as an analytical tool or accurate description, and it may be, as Professor Gray has said, that " the ultimate fact about property is that it does not really exist; it is merely illusion ". No doubt the examples could be multiplied. Nevertheless, as Professor Gray also says, "An extensive frame of reference is created by the notion that property 'consists primarily in control over access'. Much of our false thinking about property stems from the residual perception that 'property' is itself a thing or resource rather than a legally endorsed concentration of power over things and resources".

It is clear that "Property" is a comprehensive term that can be used to describe all, or any, of many different kinds of relationships between a person and a subject matter. The High Court in Yanner decided that there were several reasons to conclude that the "property" conferred on the Crown in that case is not accurately described as "full beneficial, or absolute, ownership".

They did so on a number of bases. First, there is the difficulty of identifying what fauna is owned by the Crown. Second, assuming that the subject matter of the asserted ownership could be identified, or some suitable criterion of identification could be determined, what exactly is meant by saying that the Crown has full beneficial, or absolute, ownership of a wild bird or an animal? They confirmed that at common law, wild animals were the subject of only the most limited property rights.

There could be no "'absolute property' but only 'qualified property' in fire, light, air and water and wild animals ". In the same judgment the High Court quotes Roscoe Pound 40 and his hypothesis of why wild animals and other things not the subject of private ownership are spoken of as being publicly owned.

Pound states: "We are also tending to limit the idea of discovery and occupation by making res nullius e. It should be said, however, that while in form our Courts and legislature seem thus to have reduced everything but the air and the high seas to ownership, in fact the so-called state of ownership of res communes and res nullius is only a sort of guardianship for social purposes.

It is imperium, not dominium. The State as a corporation does not own a river as it owns the furniture in the State house. It does not own wild game as it owns the cash in the vaults of the Treasury. What is meant is that conservation of important social resources requires regulation of the use of res communes to eliminate friction and prevent waste, and requires limitation of the times when, places where, and persons by who res nullius may be acquired in order to prevent their extermination.

Our modern way of putting it is only an incident of the 19 th Century dogma that everything must be owned. They noted: "Under the licensing system, the general public is deprived of the right of unfettered exploitation of the Tasmanian abalone fisheries. What was formally in the public domain is converted into the exclusive but controlled preserve of those who hold licences. The right of commercial exploitation of a public resource for personal profit has become a privilege confined to those who hold commercial licences. In truth, however, it is an entitlement of a new kind created as part of a system for preserving of limited public natural resource in a society which is coming to recognise that, insofar as such resources are concerned, to fail to protect may destroy and to preserve the right of everyone to take what he or she will may eventually deprive that right of all content.

In that context, the commercial licence fee is properly to be seen as the price exacted by the public, through its laws, for the appropriation of a limited public natural resource to the commercial exploitation of those who, by their own choice, require or attain commercial licences". Later in the same judgment and in the same vein, Brennan J observed: "If the right to fish for abalone were created in diminition of proprietary rights of the owner of the seabed and without the owner's consent, some question as to the validity of the law might have arisen, that a legislature of a State may not be competent to create proprietary rights over property beyond the boundaries of the State and to which the State has no title.

That problem does not arise in this case, however, for the management of the fishery in accordance with Tasmania law, is arranged between the Commonwealth and Tasmania. If title be needed to support the fishing rights conferred on the abalone licenceholders, the arrangement made under the Act and the Commonwealth Act testifies to the consent of the Crown in right of the Commonwealth and of Tasmania to the creation of those right. In making the statement highlighted in bold the High Court appears to acknowledge that the Crowns right to grant a licence is not necessarily dependant on title or ownership of the resource itself.

Rather they tend to use an analysis which is purposive. That is, the courts have analysed it within the confines of the particular case. The cases have therefore tended to confuse rather than assist with a clear understanding of the issue. In truth, however, it is an entitlement of a new kind created as part of a system for preserving of limited public natural resource in a society which is coming to recognise that, insofar as such resources are concerned, to fail to protect may destroy and to preserve the right of everyone to take what he or she will may eventually deprive that right of all content".

It is also worth noting that an analysis of other High Court " property" decisions seem to suggest that while the word " property " is to be understood broadly, it generally or, on one view, necessarily includes rights recognised by, or founded on, the general law as opposed to rights which find their sole source in statute.

For completeness I have included some of the other fishing cases which have discussed various proprietary interests said to give rise to property rights as a basis for fishing licences Some support that proposition while others find no such interest. For example, Olsson J.

However neither case defines what that " property " is or its nature. In reality, it is probably in the nature of some sort of a proprietary interest, or perhaps as the High Court suggests in Harper , it is a new right, which has not yet reached legal maturity by way of a clear definition. Certainly there are a string of cases dealing with the diminution of, or removal of, Commonwealth Fishing entitlements in which the High Court has held that they constitute property for the purposes of the Constitutional guarantee in s51 xxxi dealing with " taking property on just terms ". However, as noted above, it is analysed in this manner for the purposes of the case at bar and it is submitted that it is unhelpful to extrapolate these determinations to cover situations where there is no common law or statutory support.

As a fundamental principle of property law, you cannot give more than you have got. That means that if you have a limited form of title, you cannot grant to any other person any greater form of title than that which you currently have. For example, in pure property law terms, a person who holds a lease for a fixed term of years cannot grant to another person a lease of a greater number of years. The reason that issue is raised is because the State, in terms of fisheries, can only grant licenses which are consistent with their own title.

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It is also clear that there are no common law rights which underpin fishing licences. Rather they derive all their authority from the statute that grants them. For example, the right to take wood or soil from the land. It is acknowledged that fish in inland waters are also capable of being the subject of a profit. However, the concept requires that the thing to be taken be capable of being "owned" at the time of the taking, and that it be in some way related to the land.

Therefore, for these and other reasons, a profit is unlikely to assist in the analysis. At present a licence holder appears to have the right to: i. The other rights, such as excluding others, managing the resource and protecting it appear to reside with the Crown. Added to that is the fact that the licence is solely a creature of statute and liable to derrogation. The list of rights above may give rise to remedies against the granting body, but only limited rights against third parties.

It is submitted that the lack of rights against third parties highlights the limitations of analysing fishing licences in terms of property rights. If a fisher is disadvantaged in some way, the issue of compensation becomes one of social justice or equity, rather than a matter based on the licence being a property right.

Whatever the ultimate characterisation of the rights, it is submitted that the focus on them being some form of property right, is generated from the protection sought rather than the source of the right in Australia. As Justice Gummow said in Yanner: "Although appropriate to describe it as having a proprietary character, that is not because property is the basis upon which protection is given; rather this is because of the effect of that protection". It is submitted that what is needed is a more clearly defined legal framework both legislative and judicial to support that development.

It may be that the issue of native title and claims to the sea and its resources will provide the stimulus for the Courts to clarify and possibly redefine the legal nature of Australian Commercial fishing licence. Jensen C. The distinct goals of each principle must be defined and, because they compete with each other, these goals must be prioritized to avoid conflicts. Next, the system must develop management rules to achieve these goals: one set of rules for sovereignty, another for property and the third for interaction between the two.

This structure stimulates a healthy tug-of-war between the competing principles. It produces a dynamic balance that makes the current management system reliable and, looking forward, reasonably predictable in the face of normal changes and therefore durable.

Coordination with (and Lessons from) State and Local Regulatory Policies

If this lively interaction is lost, the game is over for the rights-holders. Scott has provided to help gauge the quality of property rights created through individual transferable quotas ITQs and other transferable licences in a rights-based system 1. We can also use this tool to compare the quality of rights created by different systems.

Scott has added flexibility and divisibility to this model. Figure 1: Economic model Scott - Characteristics of property rights An important finding, documented by using this model to study existing fisheries management programmes, is that systems that create the most property rights for their fishers have healthier fisheries and greater economic efficiency. Most believe there is a relationship between private ownership, through rights-based allocations, and healthier fisheries. That view suggests fishers take better care of the resource, independently or through co-management with government, because they have an ownership stake in it.

In my view, better science and increasing environmental regulation are the more likely explanation for healthier fisheries. To some degree, limiting participation helps attain environmental goals. But, the common purpose of every rights-based system is economic: to limit access to increase the likelihood the remaining participants will make a living at the licensed activity. In turn, these licensees must comply with environmental regulations to maintain their licence rights.

Compliance achieves sustainable stocks and other environmental goals. As environmental goals increasingly encroach on economic rights, the licencees have a greater incentive to influence what goals are selected by government and the process by which these goals are to be achieved. To preserve the greatest economic rights, licensees develop an increasing capability to participate in the government management process. But, industry participation is the typical response to increasing government regulation of any activity. Thus, environmental stewardship and co-management are normal industry responses, whether or not the activity is controlled through rights-based allocations.

In this respect, the relationship between ownership and the environment seems tenuous. Increasing environmental regulation, as a cause, and a healthier resource, as an effect, seems a more likely explanation.


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Whether one participates as an owner or not is largely irrelevant. In any event, the ownership that a rights-based system provides to its licensees depends completely on the success of the system, as this paper demonstrates. We can only progress if we examine rights-based systems in a valid framework. Today, the private sector has a huge investment that directly depends on the success of systems that use the rights-based model. Once the investment is made, the private sector has a limited ability to adapt to extreme changes in government management.

For this reason, we have all our eggs in one basket. We need to identify flaws in the management structure and fix them before they become serious problems and the solution is taken out of our hands. At the end of the day, without the licence, or the rights we thought we had bought, there is no business, only a pile of sticks and bricks, vessels and gear and miscellaneous equipment that has no equally productive use. Our task is to chart the future for rights-based systems. A loud cry for more or, its synonym, better private rights has resounded throughout this conference.

It is based on an assumption: if some private rights rebuild resources and promote economic efficiency, more property rights will provide an even better result. To test this assumption, we must ask how many property rights does a system need to function optimally? Once we find the answer, we will have a viable rights-based model.

Here, we will use the concept of perfect property. Figure 2 below shows us what perfect property looks like in the economic model. Figure 2: Perfect property Participants from Namibia, Zimbabwe, South Africa, Estonia, plus the Aborigines immediately recognized the meaning of the big black rectangle. Perfect property gives absolute control to the owners.

It enables these owners to manage the activity to achieve their goals. Everyone else is excluded. Absolute control is not a characteristic of property in the real world. Rights at the extreme ends of the model are not property rights. Thus, the optimal property rights will fall short of this extreme in the economic model. There has been less analysis on how property works outside a rights-based management system. Perhaps that inquiry can point us in a fruitful direction. If your government fell today, what would your property be worth? The answer is nothing. A government creates property and, as it goes, so goes your property.

Hence, owners have a vested interest in the stability of the government that creates their property. If your government allocates economic rights to only a few, what will happen? It will fail. The huge group of excluded have no reason to support the government. So, a government must manage for the good of its community, not just its property owners. Sometimes, there are conflicts between the sovereign community and the property owners. Then, the government must make choices between the two. A government will thrive if it creates enough rights and, when deciding conflicts, its choices preserve a balance between the community and the property owners.

These examples illustrate the dynamic relationship between sovereignty and property. The same rules apply to a rights-based system, which functions according to the same principles. It might help to think of a rights-based system as a mini-sovereign system. A successful system must incorporate the sovereignty-property dynamic if it is to endure. We will consider that general relationship here. But, this analysis does not evaluate particular systems, engage in comparisons of different systems, or recommend any specific course of action.

Instead, it leaves that difficult task to those with a direct stake in the outcome, an approach which, in my experience, consistently yields the best result. We have also heard about the historical development of property, including the rights-based fisheries model. This section takes the generic approach. It implies that property is the same in every nation of the world.

The distinctions are simply a matter of degree. As such, property is a concept that is easily understood by everyone. Property is a man-made concept. Its purpose is to organize private relationships. Sovereigns create property. In the broad sense, a sovereign is a community that bands together for the common good of its members. In a technical sense, a sovereign exercises dominion over a specific group.

This word is typically associated with government and I use this term here in that context. A government usually creates property by making laws that create property rights. Standing alone, a property right is insignificant unless the owner has a way to enforce it. For this reason, the government must also make laws that give individuals a way to protect their property rights.

Specifically, property is a relation between an owner and others in reference to a thing Cohen An example helps us understand the difference: i. My neighbour. When I am leaning over my fence, talking with my neighbour, I point to the house behind me and ask, "How do you like my house? That is why I refer to it as "my house" when I talk to him. My spouse. When I sit down with my spouse, we talk about "our house" because, in this relationship, my spouse and I share the legal rights to it.

My banker. Later, I drop off my mortgage payment to my banker. In this relationship, my banker has property rights in the house. I gave him those rights when I signed my loan contract. My banker can enforce his property rights if I do not pay my debt. However, I keep my property rights to the house as long as I make my payments on time. So, my banker and I each have property rights to the house that are enforceable, by one or the other of us, but only if certain events occur.

These examples shows us that different people have different property rights to the same thing at the same time. We also see that a property right depends on the specific relationship: here, the owner, a neighbor, a spouse and a banker. The word "property" is just a shorthand term that means "property rights". Usually, a person who refers to a thing as "my property" has the current right to possess or use it. But, the accurate term is property rights, not property.

A property right gives the holder the power to exclude others. If I have the legal right to possess a thing, I have the power to exclude others from possessing it. The same is true with the right to use, convey and encumber. This power is the way private relationships are organized. But, this power is never absolute. It competes with other property rights and, as we will see later, this private power is subordinate to public law.

All fisheries management systems create new property rights, not just systems that use transferable licences or allocations. A few examples demonstrate this point: i. Today many systems manage fisheries through transferable licences, such as ITQs. If a licence rule says an ITQ is transferable, that rule creates certain property rights.

For example, the rule creates the private right to receive payment when the ITQ is transferred. Although less obvious, a licence rule can create a property right even though a licence is not transferable. For example, there is a licence buy-back programme established under United States' fisheries law. Under it, the buy-back fund will pay money to retire access rights. So, this licence rule creates a property right to receive payment, even though the licence, itself, is not transferable. When a new rights-based system is designed, licence rules set out the requirements a fisher must meet to qualify for an access permit.

Typically, one requirement is catch history. This licence rule creates a property right if it allows catch history to be transferred. Specifically, that rule authorizes a fisher to sell his catch history to another person before any licences are issued. Later, the buyer can apply for a licence in his own name. These examples show us that licence rules create property rights.

However, the licence is not property. It is only the thing to which these property rights refer. Instead: i. Most systems define their licences as privileges, even though all recognize they are bought and sold in the marketplace everyday. And, a few of these systems record liens for the private sector on their licences. A lien cannot attach to a privilege. The regulations in a few systems assert that their licences are property, which is wrong. As between the sovereign and the licensee, the licence is always a privilege. The reason is explained in the following section on sovereignty.

Even in a private relationship, the licence is only the thing that refers to the property rights, not the property. Further, no rights-based rule specifically provides that individuals enforce their property rights through property law. Property rules serve a specific purpose - to order private relationships. For that reason, they are peculiar to their purpose.

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Property rules are not designed to manage sovereign activities, like fisheries. Finally, fisheries management rules are not designed to organize private relationships, like spouses, debtor-creditor and business partnerships. These two deficiencies threaten both the management system and private investments made in reliance on those systems for obvious reasons. They leave key parameters to be decided outside the licensing system; namely, by the courts or in the political arena. These deficiencies can be corrected without disrupting the management system or the property rights it creates.

A successful system must expressly state that property rights are created by its licence rules. It must, also, provide that property law controls the enforcement of those rights with two exceptions: i. Only the manager has the authority to transfer a licence. Private voluntary or involuntary transfers are prohibited.


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  • This rule makes sure the manager can control participation in the way that is required by the management-system rules. It also solves serious property problems that otherwise arise, including when a private transfer is made to an ineligible person. And, it prevents a secondary market solely for passive investment, speculation and manipulation. The manager will transfer a licence if the licence is eligible for transfer and the licencee is eligible to hold the licence under the management-system rules. This rule tells the private sector that the manager will not impermissibly intrude into private relationships or impose burdens that unnecessarily restrict property.

    It will work only if the system designers can accurately identify a limitation on property rights that is required to manage the fishery compared with a limitation that is not required to manage the fishery. These tasks are not as simple as they sound. The type of rights created should be generically defined, not specifically stated, because, over time, specific rights change.

    On the property rules, managers and industry are always tempted to write a special set of property rules that only apply to licences for that particular system. Fisheries managers and industry are not competent to craft property rules. An attempt to craft property rules in a licensing system will restrict the market and upset settled rules that organize private relationships outside the context of business activities without providing any corresponding benefit to the management system.

    That approach just creates more headaches for everyone. As such, sovereignty is a concept that should be easily understood by all. The purpose of sovereignty is to impose limitations on individuals for the common good. These limitations create an orderly society. They are made through public law. Public law is unlike property law, which orders private relationships.

    For example, a private law may allow you to buy a car, but public law can prevent you from driving it without a driver's licence. Or, private law may allow you to buy a factory, but public law can prevent you from operating the factory if it pollutes the air. In our context, private law may allow you to buy a vessel, but public law prevents you from going fishing unless you first get a government licence. So, the distinction between public and private law generally depends on the object to be achieved. Is the law trying to protect the community or to protect a particular individual?

    It has no other central purpose, such as to own property or be profitable. The power to govern is inherent and, as logic confirms, a sovereign cannot give that authority away. For example, a government can make a contract with a company to provide police services. But, a government cannot contract with a company to make the public safety laws. This basic principle of sovereignty is an absolute barrier to full privatization of commercial fisheries.

    Industry should recognize this barrier and adjust investment accordingly. For example, a government can choose, but not be required, to pay fishers when the government decides to limit or end access-rights. Recently, the government of New Zealand went into the market place and bought back its licences to satisfy a court order related to Maori rights.

    Luckily, a good price was obtained. I will use this event to consider the big picture. Certainly, a government can choose to buy-back its own licences. The economics of that decision are not entirely clear since, in most nations, the government initially issued transferable licences to fishers for free or a nominal charge.

    And, there seems to be no benefit to, later, buy those licences back at the taxpayers' expense. We can also see why a government might buy-back resources in a different situation. If a government owned natural resources in its jurisdiction and sold them, it might pay the new owner to buy the resources back at a later time. In this kind of transaction, the government is acting in a private capacity and the normal property rules apply. However, no one owns the free-swimming fish.

    The futility of trying to exert ownership over something that swims away clearly makes this point. Instead, a government's authority over its fisheries is based on its power to manage affairs within its jurisdiction.

    A government is acting solely in its sovereign capacity in this arena. So, the important question is whether a government can be forced to pay licensees before it can manage its fisheries in a different way. A fishing licence or an ITQ, is simply a tool to manage fisheries in the changing national interest. These licences regulate private participation to achieve national goals, such as sustained yield, economic efficiency and social benefits.

    The process of governing is dynamic. National goals change over time and, as they change, the sovereign adjusts its rules accordingly. For this reason, the sovereign retains the sole power to create, expand, limit or end private licence rights and does not have to pay the owner if their rights are diminished or terminated as a result. What does this mean for rights holders? It means their property rights are only as good as the current licensing rules. It also means that fishing licences, or their allocation, is a privilege given by their government; a sovereign permission to engage in conduct that otherwise would be illegal.

    In a contest with the government, property law does not apply. Instead, one's remedies are limited to those expressly provided in the fisheries management system and, then, only if they do not require the government to buy back its right to govern. The ability of a government to change the way a country is run from time to time allows progress.

    It acts as a pressure valve when public needs shift. We know that governments that lack effective pressure valves fail. More to the point, public rules create social order. Social order creates property value. Therefore, property rights are only as reliable and durable as the government system on which those private rights depend. So, what we lose in certainty on the private rights side, we gain through stability on the public side. These simple principles illustrate the mutually dependent relationship between sovereignty and property.

    The sovereign community consists of those on whom a government depends for support. In our case, it includes commercial fishers, for-hire sport fishing businesses, recreational fishers, subsistence fishers, other marine users, environmental advocates, consumers, the public, other nations and so forth.

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    Property Rights Dynamics: A Law and Economics Perspective (The Economics of Legal Relationships) Property Rights Dynamics: A Law and Economics Perspective (The Economics of Legal Relationships)
    Property Rights Dynamics: A Law and Economics Perspective (The Economics of Legal Relationships) Property Rights Dynamics: A Law and Economics Perspective (The Economics of Legal Relationships)
    Property Rights Dynamics: A Law and Economics Perspective (The Economics of Legal Relationships) Property Rights Dynamics: A Law and Economics Perspective (The Economics of Legal Relationships)
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